Today, the U.S. Federal Reserve Meeting will take its first monetary policy decision concluding a two-day Federal Open Market Committee (FOMC) discussion. Decisions of this type have special significance, however, because the decision is made during an era when Donald Trump, 47th President of the United States of America, has been in office since the 20th of January.
U.S. Federal Reserve Meeting Expected Stance Amid Inflationary Concerns
At their December policy meeting, they reduced the interest rate by 25 base points (bp) from the interest rate measure to 4.25%-4.50% and set it as a reference interest rate. This continued for 3 consecutive rate cuts in 2024 with monetary aims to ease economic growth and bring inflation under control.
At the same time, the latest CPI data indicate that “consumer price inflation is still “somewhat elevated” and having the Fed tool signaling a maximum of one or two rate cuts in 2025 should be avoided. There are implications for a prudent and conservative approach in the face of the Trump regime’s fear of economic overheating and fiscal policy’s reinforcement of this fear, for instance, etc.
In March 2022, the U.S. Fed began with an accommodative policy and gradually started raising the rate at an increasingly alarming speed of 5.25% to curb the highest inflation in the last four decades. Since July 2023, the central bank has kept the interest rate constant with the purpose of slowing down the inflation toward the target (2%).
Wall Street Reacts: Tech Stocks Under Pressure
U. S. stock markets fluctuated in varying trends before the Fed’s action. The S&P 500 and Nasdaq fell in the shadow of the tech giants (Apple and Nvidia).
- S&P 500 fell 0.36% to 6,046.03.
- Nasdaq Composite declined 0.69% to 19,596.84.
- Dow Jones Industrial Average gained 0.04% to 44868.40.
Technology leads the down drop, 1.4% down, and Nvidia, 4.6% down. This downturn follows a recent rally driven by artificial intelligence (AI) optimism, which took a hit after Chinese AI startup DeepSeek introduced cost-effective AI models that challenge U.S.-based chipmakers.
Global Market Reactions: European Stocks Rally
In contrast to Wall Street’s cautious mood, European markets surged to record highs, driven by strong earnings from semiconductor giant ASML. The pan-European STOXX 600 index rose 0.5% and technology stocks rose 2.5%. By alleviating investor anxieties with ASML’s blowout fourth-quarter bookings $7.39 billion), the AI chip market validated itself.
The other European semiconductor companies, STMicroelectronics [11] and ASM International [9] rose by an amount between 0.8% and 3.1% (both trading minutes before final figures). Stocks, e.g., Schneider Electric Siemens Energy, that are fuelled by AI also recovered back after being initially lower mid-week.
Impact on Currency and Bond Markets
The U.S. dollar appreciated in anticipation of the Fed announcement. The Indian rupee closed unchanged at 86.50, with the market in a state of trepidation.
Eurozone bond rates remained unchanged pending the Fed’s decision as well as the subsequent meeting of the European Central Bank (ECB).
Canada’s Rate Cut Signals Diverging Global Policies
It is not just resisting the dovish approach of the Fed that took the Bank of Canada by surprise in a 25 bps) further decrease in the policy rate. This is the sixth consecutive rate cut in Canada as policymakers try to stimulate growth. Nevertheless, the remit of possible Canadian tariff regimes under the control of President Trump may pose a risk to Canada’s economic projection.
Outlook: What to Expect from U.S. Federal Reserve Meeting
Even if the rate is not expected to change by the Fed, investors are likely to give special attention to Chair Jerome Powell’s post-meeting statement which may give us a hint on future policy behavior. The key questions remain:
- To what extent will the Fed tease a slowdown or further rate cuts in 2025?
- To what extent will Trump’s economic policies (in particular, tax cuts, tariffs, and restrictions on immigration) influence inflation?
- Won’t relentless inflation drive the Fed to stick rates at a high level, contrary to the Trumpian wish for cheaper borrowing?
In a world of volatile global markets, today’s vote of the Fed will establish the platform for monetary policy, GDP growth, and investor outlook in 2025. Please note that future reports should be kept in mind as the central bank releases information about the future course of US interest rates.
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